Blue chips in red despite Asia bounce, Tower

A late recovery in Asian markets and the continuation of year-end merger & acquisition activity ultimately weren’t enough to counter the drag from the big mining stocks.

The S&P/ASX 200 ended 2.1 points lower at 4775.2. The market traded as high as 4784.9 around 11am AEDT, but had slumped to an intraday low of 4754.8 by around 12.30pm AEDT as Asian markets initially opened lower. The broader All Ordinaries was up 3.3 points at 4871.6. Volume was again light.

The utilities, healthcare and IT sectors were the session’s best performers, while materials, consumer discretionary, and industrials were worst off.

Australian shares traded for the first time since December 24, with a number of key developments happening over that period, notably a takeover bid for insurer Tower Australia, and China’s decision to raise official interest rates.

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The financial sector was a primary focal point for investors.
Tower Australia
was the market’s best performing stock, also contributing about 1.4 points to the index, after directors unanimously recommended a $1.76 billion takeover offer from major shareholder Dai-ichi Life Insurance.

Japan’s second-largest insurer is offering $4 per share for the 71 per cent of Tower it does not already own. The deal was officially announced after the close of the Tokyo market on Tuesday.

Tower shares had leapt $1.14, or 41.76 per cent, to an intraday high of $3.87, just 1¢ off its intraday high. The offer represents a 46 per cent premium to Tower’s last traded price of $2.73 on December 24. The company is the No. 4 player in Australia’s $7 billion life insurance market.

General insurers traded in and out of positive territory: Insurance Australia Group was flat at $3.94 and QBE turned around to close 7¢ higher at $18.48. Suncorp Group was worst off, down 18¢ at $8.68, with reports it had started receiving flood damage claims due to recent wet weather in northern NSW and Queensland.

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Wet weather woes also took their toll on ASX debutante QR National, which fell 5¢ to a two week-low $2.73 after the company said the unseasonal rainfall would reduce coal transport volumes for the rest of the summer. Additionally, the derailment of a Pacific National train led to the closure of Goonyella coal haulage system, which is used by both QR National and Asciano-owned Pacific National. Asciano shares were down 3¢ at $1.625.

Earlier this month, miners including Aquila Resources (up 9¢ to $9.86) and Macarthur Coal (down 9¢ at $12.75), and overseas operators in Australia Xstrata and Vale to declare force majeure on coal supply contracts. Whitehaven Coal (down 14¢ at $6.73) last week warned earnings would be affected by the wet weather.

The major miners weighed on the market for the whole day, with BHP Billiton down 59¢ at $45.45 and Rio Tinto down 88¢ at $85.48.

Base metals prices in London have not traded since December 24, but one of the key concerns for the commodity market is China’s decision on Christmas Day to raise interest rates.

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Officials lifted Chinese rates by 0.25 percentage points for the second time this year. The central bank first lifted rates in October for the first time since 2007 in a bid to keep inflation under control.

The risk for commodity markets is that higher interest rates and measures to cool the property market may curtail demand for resources, which would bode ill for countries like Australia that have benefitted from China’s appetite for raw commodities.

Separately, Chinese officials also announced further cuts to export quotas of rare earth metals, in which it is the world’s largest supplier.

Shares in Lynas Corp surged 17.5¢, or 10.8 per cent, to $1.795, making it the best performer in the S&P/ASX 200 behind Tower. Other rare earths plays, were also up strongly, with Arafura Resources surging 13.5¢ to $1.355, Greenland Minerals jumping 12¢ to $1.08 and Alkane up 7.5¢ to 87.5¢.

Newcrest Mining was providing some support to the market as the price of gold broke above $US1400 an ounce. The goldminer added 70¢ to $40.52.

The reaction to the China rate rise by overseas markets on Monday was mixed, with Wall Street ending higher on light volume, but China’s Shanghai Composite slumping 1.9 per cent.

Chinese shares followed up on Tuesday with a 1.7 per cent slide but had recovered 0.2 per cent to 2739.19 in afternoon trading on Wednesday. US shares crept slightly higher on Tuesday night, again on light volume.

Japan’s Nikkei was 0.34 per cent higher at 10,328.07 and Hong Kong’s Hang Seng was 1.17 per cent up at 22,886.09.

Views on the US economy were drawn into check as the Case-Shiller index showed house prices weakened in October, and the Conference Board’s index of consumer confidence fell to 52.5 in December from 54.3 a month.

On a shaky day of trading for domestic banks, ANZ Banking Group was 1¢ higher at $23.73, Commonwealth Bank added 16¢ to $51.27, National Australia Bank declined 8¢ to $24.02 and Westpac rose 6¢ to $22.71.

Among blue chips, Telstra was flat at $2.77, Woolworths was up 20¢ at $27.10 and Wesfamers was down 17¢ at $32.23.

ING Industrial Fund rose 2.9 per cent after a consortium led by Goodman Group made a recommended takeover offer after market close on December 24. Goodman was flat at 65¢.